Flipkart’s losses were in multi-million dollars, but Walmart acquired 77 percent of shares in Flipkart for $16 billion. There are many other e-commerce companies in India that could have been acquired at much lower price, but Walmart chose an expensive option. As another example, in a supermarket, many chocolate brands are available at low price, but customers pay a higher price for Ferrero Rocher chocolate.

In the first example, Walmart didn’t just buy an e-commerce company in India, they bought Flipkart-–a brand. Just because a company is making losses, doesn’t mean that its brand is not valuable. Brand has the power to drive profits in the future. In the second example, customers don’t buy just chocolate, they buy Ferrero Rocher--a brand. Brands earn psychological goodwill in the mind of their consumers through their products, communication, distribution channel, employees and other factors. Perception effects of using a brand goes far beyond just consuming a product and over time, the reputation of the brand name drives the price.

Let’s have a look at a few of the value additions that brand provides to a business:

Attracts employees and customers: A great employer brand reduces the costs of recruitment and contributes to employee retention. The greater the quality of employees, better is the product or service, and higher is the satisfaction level of customers.

Motivates retailers to stock its products: The way it is important for brands to associate them with known retailers, it is important for retailers to associate themselves with well-known brands. If retailers keep well-known brands, they become attractive for their customers. For example, along with Baba Ramdev’s image, the growing appeal of Ayurvedic products and low price have made Patanjali very popular. To attract these customers, retailers such as Big Bazaar, Reliance Retail, Spencer’s Retail and HyperCity have created exclusive ‘Patanjali destinations’ at their outlets.

Brands give an aura of exclusivity: Exclusivity means only certain people can use a particular brand because of reasons like price, availability, barriers and so on. The people who own these brands are perceived as powerful, achievers and of high status. For example, the people who drive cars like BMW and Mercedes, wear Rolex watches, and use Louis Vuitton bags are perceived as wealthy.

Can help a company enter new markets: A company with a known brand can enter new markets and gain mindshare of customers quickly. If a brand’s equity is positive, customers would prefer to buy a new product from the same brand. For example, Tata group is India's most valuable brand, and people relate the name Tata with high ideals, principles and goodness. The group has presence in various sectors, where people associate the products and services with the brand Tata.

Helps establish emotional connect: Brands create emotional connections to separate their products from the rest, creating brand loyalty over time. These connections make customers feel like they are part of something bigger. For example, mouth freshener brand Rajnigandha launched a campaign captioned ‘Kuch Kar Aisa, Duniya Banna Chahe Tere Jaisa’. The campaign showcases different achievers who have become sources of inspiration.Over the time, the brand Rajnigandha has positioned itself as a symbol of success.

It is also important to understand in which categories brands make a difference and where they don’t. As the factors like risk and prestige of using a category goes down, the significance of having a brand also reduces.

For example, professional services such as consulting have high perceived risks and external factors don’t say much about the inner qualities. So, customers look up to brands such as McKinsey, which have created strong perceptions about quality and thought leadership. Similarly, in categories like cosmetics and makeup, brands like L'Oréal Paris are able to charge a premium. In low risk and low involvement categories such as toilet paper, aluminium foil, match boxes, floor cleaners and so on, a brand is just a recognition symbol.

In high involvement categories, to command a premium, it is important for brands to provide a superior product. High-end brands give differential advantage to their products by investing in creativity, innovation, quality, R&D, advertisement and so on. On the other hand, brands in low-involvement categories try to give differential advantage by reducing costs and improving productivity. In low involvement categories, hard discounters can win over their costlier competitors.

Marketing guru Seth Godin has said that a brand is the set of expectations, memories, stories and relationships which, taken together, account for a consumer's decision to choose one product or service over another. When thinking about creating brands, companies have to realise that building brands is not just the responsibility of marketing departments or advertising agencies. Brands are built by everything a company does.

The writer is author of the book 'Booming Brands'. (Views expressed are personal and don't necessarily represent any company's opinions)

2,325

Post Your Comment

Name

Required

Email Address

Required, will not be published

Comment

All comments are moderated

Post

Thank you for your comment, we value your opinion and the time you took to write to us!

Insta-Subscribe to Forbes India Magazine

For hassle free instant subscription, just give your number and email id and our customer care agent will get in touch with you